Investment Decisions Under The Standardized Risk Measure And Incentive Stratiges On Performing Obligations

The risk measure of investment is a critical index in investment decisions. The traditional method of measuring risk uses the variance of investment return as the risk measure, in other words, the fluctuation of investment return at its expectations is defined as risk. The drawbacks of the traditional method are universally acknowledged. Using the methods of financial analysis, stochastic analysis, mathematical programming and game theory, etc., this research is focused on the issue of investment risk measure, investment selection, investment decision optimizing and contract performing. The main ideas and contributions of this thesis are as follows. 1. On the basis of drawdown criterion and investors'target return, a new risk measure called the standardized risk measure is presented in this research. It is a relative quantity, which defined as the expected loss of value in the required target return divided by the maximum expected loss of value when the probability of failure is guaranteed under the standardized distribution of investment return. The definition is promising and superior to the traditional risk measure in that it readily makes the comparison of different investments be fairly easy and convenient regardless of their currency denominations or other measurement bases. The formulas of standardized risk measure under some important return distributions are obtained in this thesis. Its properties in the case of one-period or multi-period are discussed. 2. Utilizing the superiority that the standardized risk measure is defined under the Standardized return distributions, this research derives a group of propositions about the comparison and selection of investment projects in the category with identical standardized return distribution, The standardized risk measures of different objects have identical expressions This not only provides much more convenience for the comparison among the risks of the investment projects whose return distributions belong to the same category, but also simplifies the computation of the investment risk. 3. With extending the standardized risk measure (SRM) to the situation of multiple assets, this study obtains an important expression of SRM in the sense of probability and develops an approach for optimization of the investment strategies with SRM as objective or constraints. Central to the new approach, is a technique for investment optimization, by which the optimization problem with SRM come down to linear programming. This technique is combined with scenario-based methods to optimize the portfolio with a large number of instruments. Basing on this approach, the single objective model of minimizing the Standardized Risk (SR) with transaction costs is presented specially. The model is designed for the portfolio optimization with an assigned investment day and fixed assets holding period, accordingly, the assets prices of the investment day as the information are used in the optimizing model. An application of the model to the portfolio optimization of SSE 30 stocks is performed. History data are used for Scenario generation. 4. For Multiple assets, this study develops an approach for optimization of a double objective, the standardized risk (SR) and expected effective return (EER). A model of minimizing SR and maximizing EER for the investment of portfolio is presented, which reduces the original problem to linear programming. Basing on the assumption of unit initial endowment and a giving investment period, the model can be applied in many more situations. A case study for the portfolio of SSE 30 stacks and cash is performed to demonstrate how the new optimization techniques can be implemented and how the model of double objective is reasonable and feasible. 5. It is concerned in the study that how to make the decision of dynamic investment in the situation of multiple assets and multiple periods. With extending Kelly strategies and fraction Kelly strategies (FKS) to proportional Kelly strategies (PKF), this research defines two measures: growth rate and standardized risk for the accumulated wealth processes. The Central of the concernment is utilizing PKS to analyze tradeoffs between the growth rate and the standardized risk level of dynamic investments, modelled as a diffusion process. According to two measures'properties with respect to PKS, the set of efficient growth-risk frontier and the set of efficient growth-risk strategies are obtained respectively. They are insistent with the set of optimal growth-risk combinations and the set of optimal growth-risk strategies for not only the growth-first investors but also the risk-first investors. The effects of time-period level to the risk level, the optimal PKS, the optimal risk rang or growth range, and the optimal growth-risk frontier are discussed. A group of useful results are demonstrated at last. 6. A critical problem for transferring R&D (Research and Development) achievements from the party of R&D to the party of obtainment is how to ensure the interest of the former. This study considers the designment of transference contracts based on game theory and quantitative analysis. Three types of contracts are provided. They are expressed normally in the quantitative way and are incentive compatible for the target that the party of obtainment performs its obligations willingly. The incentive compatibility of each type of the contracts is demonstrated respectively. The designed contracts are corresponding to three common situations in practice. For two of these situations, it is discussed also that how to design the contracts with optimal efficiency for a double target, which is stimulating the party of obtainment to perform its obligations and maximizing the revenue of the party of R&D. The conditions of incentive compatibility with optimal efficiency in each situation are obtained.